1 in 4 IT Jobs Done Overseas by 2010

By Allen Bernard

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If walks like a duck, quacks like a duck and looks like a duck then it’s probably a duck. So, in this instance, if you think your company is outsourcing more and it makes sense for your company to outsource more to save money and your job is being outsourced to India, well, then your company is outsourcing more.


It’s not surprise then that as the economy crumbles, the Global 1000 are going to do everything they can to cut costs. Because, with credit markets at a near stand still, cash is king and the only place to get short term cash if no one is buying is through savings. According to new research from The Hackett Group, part of this savings is coming through labor arbitrage. Global 1000 companies are significantly accelerating their movement of back office jobs to India and other low cost labor markets offshore.


“That’s not something we hear all the time,” said study author and Hackett Group Senior Research Director, Eric Dorr. “Far from it … we feel there is some serious belt tightening going on; including the IT function.”


Just over a third (31%) of the 200 companies Hackett surveyed said they will be moving more G&A (general and administrative, which includes IT) jobs offshore in the coming months. And while this may give them a black eye here at home, Hackett believes this to be an imperative if companies want to stay competitive and survive.


“Given the amount of instability and impact on morale associated with staff

cuts and hiring freezes, one might have expected that companies would elect

to scale back plans to move G&A work to low-cost countries. However, the

data tells a different story: … ,” the report states.


Over 350,000 jobs in IT, corporate finance, HR, and procurement will move offshore in 2009 and 2010 alone. This will bring the total number of back office jobs being done offshore to over 800,000. The IT breakdown is particularly noteworthy. Nearly half of the jobs moving offshore in these areas over the next two years are in IT. By 2010, about one in four jobs in IT will be located offshore.


“In times of growth everybody is focused on IT as this strategic enabler and we need to do this to stay competitive … and then when times get tough that perception changes and a lot of people are talking about IT in terms of G&A and overhead and how we can it to the bone,” said Dorr. “What we are saying is if you, as a global organization competing against other global players, keep in place a G&A cost structure that is not competitive, it’s going to hurt you.”


Double Whammy


As companies accelerate their use of offshore resources, the recession is driving hiring freezes and staff cuts at home. In finance and IT, about 50% of all companies surveyed are freezing hiring, cutting staff, or doing both simultaneously.


Hackett does see an upside, however. The research shows that globalization, as the engine of economic growth over the past five years, has generated  global revenue growth running 50% higher than local & regional revenue growth. According to Hackett’s research, typical Global 1000 companies currently realize over $16 million in annual savings through offshoring of back office operations. More than half of that is IT cost savings. This number will grow to nearly $30 million by 2010. But this still represents only about a third of the total potential cost savings, which could reach up to 17% of total G&A costs.


This, in the long run, will help keep these companies afloat through the tough times. If a global company does not employ cost cutting measures around staff, it runs the very real risk of disappearing, said Dorr.


As the report states: “ … companies that fail to push ahead with G&A globalization initiatives risk being saddled with an operating model and cost structure that compromise their competitiveness. Since competitiveness is ultimately the condition for survival in the ruthlessly Darwinistic global economy, the higher a company’s competitiveness risk is perceived to be, the more it will tend to trump other globalization risk considerations. Worse, in times of crisis, the risk associated with leaving cost savings opportunity untapped increases: A 2% to 3% disadvantage in overall cost structure that is manageable in normal times can bring a company to its knees during a deep recession.”